Policy initiatives that may facilitate processing investment
The major impediments to wood processing listed in the preceding section generally give rise to policy initiatives that may alleviate them. A key is to find cost-effective solutions that maintain a level playing field for all current industry participants and in relation to other sectors in the New Zealand economy. It is convenient to, once again, examine policy solutions in the competitive advantage framework.
1. Factor endowments
A significant issue raised in the interview process was a perception that the New Zealand forestry sector has not generally been notable for its performance or management during the past 20 years. One interviewee for example noted, "an absence of depth and real understanding in the NZ forest industry. We are not sophisticated producers". This was certainly not an isolated comment, and tied in with perceptions that there is an absence of overall leadership (for better or worse) in the sector.
In this light, and given the current situation of burgeoning wood production and uncertain markets, it seems an appropriate time to review the evolution of the forestry industry in New Zealand, and particularly whether changes may be required in the mainstream of the industry. The long-term nature of the forest-growing industry requires that we act now to position ourselves in markets in 20 years. A useful starting point might be to review the recommendations and findings of the 1992 Forest Industry Strategy Study to ascertain what changes were implemented, what has worked and why. There could also be some open questioning of some of the fundamental directions and tenets of plantation forest management in New Zealand in the light of our recent market experiences, and updated assessments of future global markets for wood products. For example, companies should be examining the price and market assumptions that underpin the IRR models that have largely driven the establishment of radiata pine plantations in New Zealand, and the management prescriptions applied under the key regimes. Attention needs to be paid to what future markets for wood products will be demanding as well as what "the wall of wood" is providing.
Mainly, what is advocated here is the encouragement of a more open and questioning culture in the sector – this could take a number of forms - for example, promotion of better communication between processors and non-integrated forest owners to ensure forest owners are better informed of expectations of local processor requirements and market trends. In tandem with the development of this more questioning culture, is a requirement for a mainstream shift from production-based to market-led philosophies. This needs to be embraced far beyond the areas of sales and promotion.
A second issue that needs to be (and is being) addressed is the need for the development of a credible, internationally recognised certification process for New Zealand plantation-grown timber that is widely accepted by the New Zealand industry as being a desirable means of generic marketing for New Zealand’s forestry products.
2. Firm structure, strategy and rivalry
Some of the most significant impacts on industry structure have been decisions under the Commerce Act to decline approvals for forest acquisitions. An important criterion in these decisions has been the acquisition of dominance in regional wood markets. It is believed that there would be significant merit in commissioning a formal study to investigate the real contestability and significance of regional log markets.
Maori own significant tracts of forest and forest land in New Zealand – as well as holding significant financial assets. To date, however, there has been no significant Maori investment in wood processing – despite wood processing offering a well-integrated downstream activity from forest-growing. There may be merit in providing information and assistance to Maori groups to raise awareness of potential opportunities in wood processing.
3. Demand conditions
Market access policies are generally well developed in government, and the general directions of efforts are appropriate. There are, however, significant deficiencies in the network that should logically transmit industry concerns to government and officials. It is industry marketing and sales representatives that will generally run up against market access barriers, particularly non-tariff measures, but there is no properly formalised means of notifying concerns to government. It is suggested that a formal and well-publicised market access information system be put in place to address this concern.
The majority of interviewees believe that market development activities should be carried out by industry, rather than government. There was a general perception that past efforts at generic marketing have not been successful. Nonetheless, while there is plenty of disillusionment with generic marketing efforts there remains merit in ensuring that New Zealand radiata pine is positioned and marketed in a consistent (and possibly integrated) manner. The basic 4Ps of marketing (product, place, promotion and price) retain relevance at the generic level as well as the company-level and should provide a starting framework for discussing generic market development efforts.
4. Related and supporting industries
The principal infrastructural policy initiatives required to promote investment in forest processing relate to improving transport services and making them more efficient. In general, this requires more attention being paid to specific forestry requirements. Thus, a specific policy recommendation is that economic development be specified as a Transfund benefit parameter. Policies need to encourage continuous improvement in port services and efficiency, while the sector, as a whole needs to raise its awareness of the range of options for minimising the costs of sea-freight, perhaps by exploring innovative arrangements for delivery, or by formalising new consortiums for shipping.
Given the significance of transport costs in the delivered price of New Zealand forestry products it is suggested that there may be a role for an industry committee to analyse the entire forestry transport system (specifically including shipping) to investigate means of improving efficiencies and to raise awareness of the variety of options available to exporters.
5. Government
It has already been noted that the Resource Management Act is regarded as the greatest single impediment to wood processing investment in New Zealand. While a number of specific impediments have been identified, the forestry sector also needs to come up with some agreed and constructive proposals for change in this legislation, and particularly the ways it is implemented. Some of the specific suggestions made during the interview process were:
- A need to establish ready-zoned industrial areas with consents already approved. An example was given of the provision of fully serviced sites (i.e. provision of amenities as well as appropriate zoning and consents) in Arkansas – and this model might be usefully examined.
- Implementation of programmes that make information sharing between councils more cohesive to ensure greater consistency between regional and district plans throughout the country.
- Maximum streamlining of consent processes to minimise costs and delays
- Increased capacities in key bottlenecks, for example at the Environment Court.
- A review of scientific processes to ensure proofs are given appropriate weightings in decisions.
- Protection for applicants from frivolous or mischievous complainants.
- Improvement of the public waiver process to provide a more balanced environment for agreement.
Legislative reform might also be appropriate in some spheres of tax legislation – most particularly relating to accelerated depreciation regimes, and research and development expenditure.
A number of interviewees also discussed the potential role of government incentives in promoting wood processing investment. A variety of views was expressed, but some of the themes were:
- Incentives would make New Zealand more competitive as an investment destination by lowering costs of entry;
- Incentives must never disadvantage existing industry;
- The best incentives would be government investment in infrastructure;
- There may be a role for targeted incentives in problem areas – or government’s aspirations in problem areas will only be met through the payment of incentives.
There was no expectation that any form of incentives would be forthcoming in the near future.
Contact for Enquiries
Rural Affairs Coordinator
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0675
Fax: +64 4 4 894 0745
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